[FatherOfTwo]

I’d like to explore the following:
The lack of new mega field discoveries is due in part to several factors:
1) the emergence of energy trusts
2) $10/barrel oil in the late 90’s
3) it is genuinely harder to find the mega fields

Most of the threads on this site have pinned the lack of mega fields squarely on factor #3. And when it comes to the ghawars’ of the world, that’s pretty obvious. But, is it possible that factors 1) and more importantly 2) are significant contributors?

A couple of articles in the Globe and Mail make this very point. As a quick aside, the Globe and Mail is running a week long series of articles entitled “Crude Awakening– how oil is changing the world”. Lots of great articles are available.

One article in today’s edition (which isn’t directly a part of the series, and you need to be a premium subscriber to read it) talks about how $10 oil in the late 90’s led many companies to radically slow down their exploration efforts. (The article is here if you want to become an inside edition subscriber) It also suggests that even at these higher oil prices companies are still reluctant to explore because much of it has to be done in geologically or politically hostile environments, which means they want an even higher price to justify the risk.

Another article (again need to be an insider, but it is here) talks about the proliferation of energy trusts, and how many of these trusts are “focusing on the “P” in P/E” and that energy trusts are typically laggards on the exploration front.

So, seeing as many at ASPO feel that 2007/2008 will be important because of the lack of mega discoveries coming online, I was wondering what the consensus is here about the impacts of 1) and 2) above. Or more succinctly “We don’t have many mega discoveries coming online because of the lack of exploration.”

Granted, even if they found some now, it would be many years before they could come online. Also granted, they are having to “go to the ends of the earth” to make these discoveries and they won’t buy enormous amounts of time. But, if the claims have some merit, what we could have is a small dip in production before ramping up again to an eventual peak. For example maybe 2007/2008 is when production does dip, but maybe some new megafields will come online in 2010 or later, giving us another ride up to the true production peak?? Or will the depletion from existing wells far outweigh any potential megafields. (I’ll admit I haven’t crunched the numbers.)

Thoughts?

[Pops]

Then there was the article that said most of the majors have been losing money on exploration three (?) years running.

That must put a damper on.

[cube]

I remember reading this book



where the author, Sonia Shah, states that the amount of money spent on oil exploration for the year 2003 was more then the GDP of Saudi Arabia!

So the next time you get into a debate with a peak oil naysayer and they mention:

"The reason why oil discoveries has dipped from its peak during the mid 1960's is because oil companies are not putting effort into oil exploration. From a business perspective why waste money looking for something that you have such a large supply of?"

If any PO naysayer pulls that argument out of their ass just mention the little "statistic" and see how they respond.

[rockdoc123]

My own view is the very low oil prices we saw slowed down exploration in expensive areas but for most onshore areas companies were either commited to their programs or had a long term view on oil prices. With regard to the trust equation you only see them in places like Western Canada where exploration pickings are very very small. The chances of finding a field over 1 MMB in size are quite small so their impact on big discoveries is unlikely to my mind.
No I am convinced having chased around looking for this stuff for the past 30 years that we are pretty much running out of options for significant discoveries. And when I say significant I mean anything over a billion barrels. The argument that the big ones are left to be found in the nasty countries where no one wants to go is hard to justify I think. For instance several companies have pretty much drilled up the potential in Yemen...a few good sized fields but no super giants. Sudan has had a considerable amount of drilling in the past 5 years but reserves there are likely to total less than 3 B bbls and spread out over a host of fields. Companies are coming back to Libya but unlike what the press portrays this is not a country that has seen little drilling.....it is actually quite mature in the prolific Sirte Basin and starting to see its mid life in the Murzuq from an exploration standpoint. Algeria is a nasty place that has seen considerable success with a number of giants discovered in the past 10 years but again the oily basins such as the Ghadames are pretty mature. Even when we look at the deep water areas of the world the room to roam is getting smaller all the time. Certainly there are going to be some more oil discoveries in the ultradeep water (> 2500m) in places like Nigeria but to be economic there will have to be some advances made in terms of economics of drilling and extraction. We hear about the NPRA areas of Alaska as being the great hope but if you look at average Alaskan field size there is Prudoe Bay and perhaps Alpine and then a bunch of smaller fields. So is there any other areas ......maybe Greenland which is now starting to get explored, perhaps offshore deep water East Africa which is also getting explored, maybe Artic Islands although that has proved to be pretty gassy.....maybe Antartica although that is a real reach.
I would like to offer up another possibility for lack of success at finding big ones.......the people in charge of oil companies are no longer the same driven pioneers like William D'Arcy or Armand Hammer who were explorationists first and business men second. These days you are more likely to see the exploration programs being run by lawyers or accountants. The best story I remember reading was from The Prize about the discovery of Spindletop. The fellow responsible borrowed himself into the poor house, used all the money he had in the world but would not give up and finally....voila the field that started the oil boom in Texas.

[khebab]

Apparently, nobody is rushing into new explorations and it seems to support your third argument:

$this->bbcode_second_pass_quote('', '
')For their part, oil companies aren't rushing into anything.

Roddy Kennedy, a BP spokesman, said the company has no plans to spend more on drilling or exploration and will continue to return the extra cash to shareholders in the form of dividend increases and stock buybacks.

[pup55]

I like rockdoc's comments above about the people now running the oil companies. Nothing like a bunch of lawyers and/or finanacial types to put a damper on any kind of creativity, risk taking, and/or divergent thinking.

But, it looks to me like these figures do not consider the smaller exploration companies that are, indeed, run by the explorationists. If you are a big oil company, far easier to let these guys do your dirty work.

From the point of view of the big oil companies, this is a no-brainer. If they succeed and strike oil, you buy them out. If they fail, they go broke, but as a big oil company, that's their problem, and not yours. The success rate of you finding oil by buying people out is practially 100%.

[FatherOfTwo]

rockdoc123, thanks for the informative reply.
My stock advisor also had this to add about the energy trusts:

I think you might have the situation backwards. Its not that trusts are
"shying away" from exploration, that is the way that most of them were
set up. They were never meant to be exploration companies. Only recently
have some trusts set cashflow aside from distribution to fund
exploration and enhanced exploitation.

Oil and gas is by nature a depleting commodity, so if a trust wants to
be an ongoing concern, production must be replaced-- either through
exploration or exploitation and acquisition.

[Colorado-Valley]

Thanks, Rockdoc, that was interesting.

Somebody did find a billion-barrel pool in central Utah recently.

At least they say they did.

[0mar]

Since about 1984 or so, we have been consuming more oil than we have found.

With advanced techniques, we can find only small little pockets of oil. This means that all the good mega-fields are taken already. There might be a couple here and there, but for the most part, the discovery curve is just going to decrease rather than level off or increase.

[khebab]

There was also an article in the May issue of The Economist called "Global or National" (has been commented in the following blog Shrinking BigOil - The Economist on oil (I) - the smart stuff). Some quotes:

$this->bbcode_second_pass_quote('', 'h')e chief factor behind today's profits is the surge in the oil price. And beyond that mountain of profits, the industry faces challenges that could ultimately wipe out some or most of these firms, once venerated as the Seven Sisters.

The biggest firms may be running out of good ways to invest their money. Oil bosses such as BP's Lord Browne and Exxon's Lee Raymond vigorously deny it, but it seems that the majors, though cash-rich, are opportunity-poor, just when their dwindling reserve base badly needs topping up.

"Oil is a depleting asset. Every day, if we don't spend money and find more oil, we lose assets. Most oil companies, by doing nothing, will shrink to one-fifth today's size."

[rockdoc123]

$this->bbcode_second_pass_quote('', 'B')ut, it looks to me like these figures do not consider the smaller exploration companies that are, indeed, run by the explorationists. If you are a big oil company, far easier to let these guys do your dirty work.

From the point of view of the big oil companies, this is a no-brainer. If they succeed and strike oil, you buy them out. If they fail, they go broke, but as a big oil company, that's their problem, and not yours. The success rate of you finding oil by buying people out is practially 100%.

[smiley]

The first mega fields were found by people wondering around in the desert with little more than a rock-hammer.

Now we've got satelites which can zoom in on any region in the world to look for oil seeps. Within days you can have a team on the ground. Even if on the ground means 3000 feet below sea level.

I fail to see how any reason other than a lack of mega fields could explain the fact that we're not finding them.

[PhilBiker]

$this->bbcode_second_pass_quote('smiley', 'T')he first mega fields were found by people wondering around in the desert with little more than a rock-hammer.

Now we've got satelites which can zoom in on any region in the world to look for oil seeps. Within days you can have a team on the ground. Even if on the ground means 3000 feet below sea level.

I fail to see how any reason other than a lack of mega fields could explain the fact that we're not finding them.

[Jack]

$this->bbcode_second_pass_quote('PhilBiker', 'U')m... How much time and effort would it take to pour over all that sattelite data and find the seeps? Answer: Shitloads.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')he first mega fields were found by people wondering around in the desert with little more than a rock-hammer.

Now we've got satelites which can zoom in on any region in the world to look for oil seeps. Within days you can have a team on the ground. Even if on the ground means 3000 feet below sea level.

I fail to see how any reason other than a lack of mega fields could explain the fact that we're not finding them.

[smiley]

$this->bbcode_second_pass_quote('', 'N')o company would now spend the amount of time D'Arcy did in looking for and negotiating rights to oil concessions in Iran....

[nero]

$this->bbcode_second_pass_quote('', 'A')nd to assume that they are not looking or that they don't take any risk is IMO a false argument. If that were the case than the success rate for exploratory drilling should be rising not dropping as it is. They are taking more risk, not less.

[MD]

It would not matter if Billion Barrel fields began to pop up monthly, starting last week. in order to significantly impact peak date, we would have to begin finding 100 Billion Barrel fields, immediately!

I am stunned by the strength of the denial against the clear facts of oil depletion....absolutely stunned. I find myself going back to review the data repeatedly just to make sure I haven't personally tipped.

I feel a rant coming on...I am getting damn sick of being compared to the Y2K ninnies that went raving about proclaiming "the end" when they based their overzealous claims on a misunderstanding of basic electrical engineering concepts. I am furthermore sick of the queer looks from my politically conservative peers whenever I attempt to broach the subject of peak oil.
Since I am blasting away, I have a little piece for all you "left wing environmental communist whackos". Some of you need to quit hijacking peak oil issues to serve your own political agendas, the issue is just too damn important for all of us and you are making it profoundly difficult to make a credible case to the "right wing fascist nazi pigs."
What the hell, forget it, just burn it all down.
Rant off.....

[Devilboy]

Aw MD. We love you.

[0mar]

Doubling known reserves only buys 17 years. That's adding 1 trillion barrels tomorrow.